1. Why is it unrealistic to assume that inventory costs will remain constant over time?
2. What is a cost flow assumption?
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3. Briefly explain the specific identification approach.
4. Briefly explain the first-in, first-out cost flow assumption.
5. Briefly explain the last-in, first-out cost flow assumption.
6. Briefly explain the averaging cost flow assumption.
7. Which cost flow assumption will give a higher net income in a period of rising prices?
8. Why don’t all companies use specific identification?
9. Which cost flow assumption appears to be used by more companies than any other?
10. What are advantages of using LIFO?
11. Why must a company keep one set of books for financial reporting purposes and another for tax compliance purposes?
12. Why do many countries not permit their companies to use LIFO?
13. Explain LIFO liquidation.
14. How can users compare companies who use different cost flow assumptions?
15. How is gross profit percentage calculated and what does it tell a user about a company?
16. How is number of days in inventory calculated and why would a user want to know this number?
17. What is inventory turnover? What does it tell a user about a company?